Pickups and SUVs will help auto maker fund development of
driverless, electric cars
By Mike Colias
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 27, 2018).
General Motors Co.'s executives considered axing the GMC truck
division ahead of the company's bankruptcy, as they sought to scale
back the sprawling Detroit auto maker. GM's decision to keep the
brand is paying off a decade later as pricey pickups and
sport-utility vehicles displace luxury sedans as America's rolling
status symbol.
As Chief Executive Mary Barra pushes forward with her strategy
to exit some major markets, including Europe, the relatively unsung
GMC unit has become a disproportionate contributor to the company's
income, money that will fund the development of driverless and
electric cars.
GMC pulled in about $24 billion in revenue last year, according
to a Wall Street Journal estimate, 16% of GM's global revenue and
roughly equal to that of Porsche AG. The unit doesn't attract the
same headlines that corporate siblings Chevrolet and Cadillac get,
and the brand lacks the luxury cachet of Toyota Motor Corp.'s Lexus
or Volkswagen AG's Audi. But because it mostly sells pickup trucks
and premium sport utilities with extras such as French-stitched
leather and chrome grilles, GMC delivers more profit per sale than
most other brands in the global car business.
The success of GMC helps General Motors take advantage of a
growing premium automobile market at the same time Cadillac
continues to trail luxury rivals. While Cadillac's Escalade
sport-utility vehicle is an unrivaled success, the brand's sales
lag behind BMW AG, Mercedes-Benz and other makers of luxury
crossover SUVs and performance sedans.
GM plans to unveil a new pickup truck Thursday in Detroit that
could further sweeten GMC's contribution. The revamped Sierra large
pickup truck, long seen as a near-identical twin with the Chevy
Silverado, is expected to carry a number of exclusive features,
including an optional carbon-fiber pickup bed.
Unlike Ford Motor Co. and Fiat Chrysler Automobiles NV, which
sell one version of a full-size truck (the F-150 and Ram,
respectively), GM's two-pronged approach is designed to capture a
broader swath of buyers. More than 2.4 million large pickup trucks
were sold last year, 14% of overall U.S. sales -- up from 11.4% in
2012. Having more offerings could boost appeal among buyers who
include workaday contractors and well-heeled ranchers.
GMC customers "love getting their hands dirty, but they're very
wealthy, " said Duncan Aldred, the GM executive in charge of the
brand.
The profits from GMC's hulking trucks are helping GM make
products for its longer-range bets on electric and autonomous
vehicles. The company is boosting spending on AV development by
two-thirds this year to $1 billion. It plans to deploy a fleet of
driverless taxis in undisclosed cities next year, targeting what
research firm Strategy Analytics estimates will be a $7 trillion
global market by 2050.
The company, which made $12.8 billion in operating profit in
2017, won't disclose its electric-vehicle investment, though it is
likely substantial. Analysts expect the commitment to tally a few
billion dollars a year over the next decade, with plans for 20 new
models powered solely by batteries or fuel cells within five
years.
The average GMC sells for $44,000, representing a 25% increase
from 2012, a $13,000 premium over the industry average and 36%
higher than Chevrolet's average selling price across all
models.
GMC's success is a bragging point for a company once derided for
having a bunch of barely differentiated brands. Even today, six of
GMC's seven models are mechanically identical to a Chevy,
distinguished by different exterior designs and slight variations
in the cabin. The next-generation Sierra is expected to take the
distinctions further with a more-luxurious interior.
The company faces a challenge in not straying too far from GMC's
modest-luxury image. Where Cadillac's Escalade commands a $15,000
premium over its GM counterparts by being stocked with bling, GMC
commands prices that are generally higher than mainstream brands
because it is seen as "professional grade," a nod to its longtime
advertising tag line.
Chris Hemmersmeier, a dealer who sells all four GM brands --
GMC, Cadillac, Chevy and Buick -- in the Salt Lake City area, says
some customers who choose a GMC think Cadillac is too showy.
"They think GMC is more of an under-the-radar luxury vehicle,"
he said. Mr. Hemmersmeier recently had a customer trade in a
Porsche for a GMC, which he preferred because it was more
low-key.
Much of GMC's pricing power comes from its high-end Denali line,
expensive trim packages that can include more engine power and
cosmetic frills such as a chrome grille. Denali has grown into de
facto luxury truck division, rising to 29% of GMC's sales last
year, from 21% in 2014.
"That thing is a money machine," GM President Dan Ammann said of
the Denali line last month during an investor conference. Mr.
Ammann presented a slide, citing research from J.D. Power, that
showed Denali's average selling price of $55,600 a vehicle in 2017
was higher than any higher-volume auto brand, including BMW and
Daimler AG's Mercedes. The Denali line also outsold Cadillac, at a
higher average price.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
February 27, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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